Knockout Rule

Knockout Rule

The knockout rule, also known as the fallback provision or supplementary terms rule, is a principle in Contract Law that addresses conflicts or inconsistencies between the terms of a contract. Under the knockout rule, when conflicting terms cannot be reconciled, they are removed from the contract, and the court inserts default provisions provided by the applicable law or industry customs in their place.

The purpose of the knockout rule is to prevent the entire contract from being invalidated due to conflicting terms. Instead of rendering the contract void or unenforceable, the rule allows the remaining provisions to stand and fills any gaps or inconsistencies with standard or default terms.

The knockout rule is often applied when the conflicting terms are not considered essential or fundamental to the contract, and the remaining provisions are still capable of creating a coherent agreement. The default provisions inserted by the court are typically those that are commonly recognised or implied by law to fill gaps left by the removal of the conflicting terms.

By applying the knockout rule, courts aim to salvage the enforceability of the contract by preserving the valid terms and ensuring that the parties' intentions are upheld to the greatest extent possible. This rule promotes the principle of party autonomy and seeks to prevent unfairness or frustration that could arise from the invalidation of an entire contract due to minor conflicts in its terms.
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